Jakarta, 12 September (Argus) — Indonesian thermal coal prices may start to recover towards the end of this year, according to participants at an industry conference organised by Coaltrans.

“Chinese winter demand will be coming in towards the end of the year,” a senior official at a mid-sized Indonesian producer said. “What is different this year is that weak demand has led several Chinese coal mines to close and it is not easy for them to restart again. This will force Chinese customers to look to imports and Indonesian coal is the most competitive option.”

Indonesian supply is falling as producers trim output amid lower purchasing requirements from regional power plants, with this also expected to help support prices in the near future. “But Indonesian coal will still remain the most competitive option for Chinese and Indian buyers” as coal production costs are higher in Australia and South Africa, a trader explained.

Indonesia's average coal production cost is slightly less than $54/t, compared to around $70/t for Australia. Indonesian coal also benefits from lower freight costs as the shipping distance from Indonesia to China or India is much shorter than similar routes from Australia.

But current market conditions are tough for Indonesian producers, despite the prospects of an upturn in the future. The official at the mid-sized mining firm, which produces 5,200-5,600 kcal/kg GAR coal, said the company was previously able to sell at a single-digit discount to benchmark Newcastle coal. “The discount is now double-digit,” he said.

A representative from another fairly large miner that produces 4,200 kcal/kg GAR coal described current margins as “razor thin”. Miners have to continue production to maintain cashflow, he added.

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